Chinese investors often structure their investments in a target company in a foreign jurisdiction (e.g. in Europe, the U.S. or Africa) via a Benelux (=Belgium/Netherlands/Luxembourg) holding company. This structure may be further enhanced by interposing a Hong Kong intermediate holding company between the Chinese investor and the Benelux holding company.
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When structuring an investment through a Benelux holding company, the Chinese investor would typically be concerned with the tax treatment of the investor, and of the Benelux holding company and with the taxation at source in the jurisdiction of the target company. Ideally there should be no or limited capital gains tax and taxation at source in the jurisdiction of the target company and complete tax neutrality for any and all income to be received by the Benelux holding company and paid by the Benelux holding company to the investor. As further detailed below, when properly structured, Benelux holding companies meet all these requirements.
Benelux taxation of the Chinese investor
A Chinese investor (directly or through its Hong Kong intermediate holding company) will normally not be taxed or taxed at a reduced rate in the Benelux on capital gains, dividends, royalties and interest earned or realized on its investment in a Benelux holding company. This is either based on domestic law or on the tax treaties with China or – if a Hong Kong intermediate holding company is used – with Hong Kong.
The table below sets forth the lowest rates for dividends, interest and royalties paid by the Benelux holding company to the Chinese investor or the Hong Kong intermediate holding company and the taxation of capital gains on the sale of the shares in the Benelux holding company under domestic law and the tax treaties between Belgium (Bel), Luxembourg (Lux) and Netherlands (NL) with China and Hong Kong (HK).
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Benelux taxation of the holding company
The Benelux countries do not levy capital, stamp or registration tax upon incorporation of a holding company.
The Benelux countries benefit from participation exemption regimes which give a full or nearly full exemption for dividend income and capital gains earned from qualifying foreign and domestic subsidiaries (this normally requires a share interest of at least 5% to 10% in the target company). The participation exemption regimes therefore provide for complete (or nearly complete) tax exemption of the Benelux holding company.
Taxation at source in the jurisdiction of the target company
When using a Benelux holding company to invest in the target company, taxation at source in respect of dividends, interest and royalties is generally largely reduced or even brought down to 0% under the applicable EU Directives and tax treaties. The tax treaty network of the Benelux countries belongs to the widest in the world.
Benelux holding companies are very well known in the current market and widely used as platforms for cross-border investments. The continuing success of the Benelux in hosting holding companies lies in the fact that each country has a robust, stable and predictable legal framework and has highly qualified, experienced and dedicated workforce making the implementation and administration of the Benelux holding company simple and efficient.
A Benelux holding company is internationally accepted due to the fact that the Benelux tax regimes are a balanced system of benefits with sufficient realistic substance requirements and anti-avoidance requirements. As a result, the Benelux countries are not considered a tax haven by other jurisdictions. Some foreign jurisdictions may, however, challenge the tax residency of a holding company and it is therefore advised to put sufficient substance in place.
A truly unique feature of the Benelux is the possibility of obtaining clearance from the relevant tax administration confirming the tax position of the Benelux holding company. The tax administrations are well known for their professional and co-operative attitude. The procedure is very efficient and transparent and clearance can generally be obtained within a short timeframe.